2016 Year in Review False Claims Act

Transcription

1 2016 Year in Review False Claims Act January 25, 2017 Jeremy Kernodle, Haynes and Boone, LLP haynesboone.com Sean McKenna, Greenberg Traurig, LLP

2 The Lincoln Law (March 2, 1863) Then: unscrupulous Civil War contractors Now: single most effective tool to combat fraud against the United States 2

3 Overview Imposes civil liability on a person or entity that Knowingly presents a false claim for payment to the U.S. government, Knowingly makes or uses a false record or statement material to a false claim, or Conspires to commit a violation of the Act. 31 U.S.C

4 Scienter Negligence is not enough Knowing or knowingly Actual knowledge Deliberate ignorance Reckless disregard No specific intent to defraud required 4

5 Remedies 3 times actual damages (though damages not required to prove liability) Attorneys fees and costs Civil penalties Before: $5,500-$11,000 per claim Now: $10,781-$21,563 per claim 5

6 Other Outcomes Suspension of payments Termination from government programs Exclusion/debarment/revocation of license Cost of responding Loss of business/good will/morale 6

7 Whistleblower or Qui Tam Actions: Private citizen ( relator ) files case on behalf of government Under seal for at least 60 days as DOJ reviews May pursue without DOJ involvement Protected from retaliation under 31 U.S.C (h) Entitled to share of proceeds (15%-30%) 7

8 Statute of Limitations 6 years from violation, or 3 years from when material facts are known or reasonably should be known by responsible official, but In no event more than 10 years from violation 8

9 DOJ Priority: Healthcare Fraud Main Justice Criminal/Civil/Antitrust Divisions Consumer Protection Branch 94 U.S. Attorney s Offices Healthcare Fraud Coordinators FBI and DEA Distinct funding sources Since 2009: $31 billion in recoveries 9

10 Statements of Interest DOJ declines intervention in majority of qui tam cases However, DOJ closely monitors FCA cases and routinely files Statements of Interest Statements of Interest An amicus brief asserting position(s) on arguments raised by both sides 10

11 2016 Activity DOJ recovered more than $4.7 billion in FY 2016 Up from last year s $3.5 billion recovery Continuing a 5-year record of recoveries over $3 billion Of $4.7 billion $2.5 billion from healthcare industry Only $120 million from defense industry More than half from cases filed by whistleblowers Number of qui tam suits exceeded 700 Average of 13.5 new cases per week Way up from 1987 s 30 per year Whistleblowers received $519 million 11

12 Notable Settlements $1.2 billion settlement with Wells Fargo re: allegations it fraudulently certified loans for FHA insurance $785 million settlement with Wyeth re: allegations it failed to provide discounts to government regarding acid reflux drugs $260 million settlement with Novartis to resolve allegations of kickbacks to specialty pharmacies 12

13 Notable Defense Victories United States ex rel. v. Abbott Laboratories (N.D. Tex.) United States v. AseraCare Inc. (N.D. Ala.) 13

14 A new day? 14

15 The FCA in a Trump Administration Sen. Sessions: We cannot afford to lose a single dollar to corruption and you can be sure that if I am confirmed, I will make it a high priority of the Department to root out and prosecute fraud in federal programs and to recover any monies lost due to fraud or false claims. But new administration could ease Yates policy and other agencies could follow lessening individual liability Appointments to federal bench could expand Escobar and other recent FCA decisions 15

16 The FCA in a Trump Administration Executive Order Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal (Jan. 20, 2017) Any repeal of the ACA could affect the FCA: Public Disclosure Bar Removed express reference to jurisdictional nature of public disclosure bar Gave government the ability to object to dismissal due to the public disclosure bar Narrowed categories of what constitutes as public disclosure Provided relator with a lower standard to qualify as an original source 60-Day Rule: A person who has received an overpayment must report and return such overpayment within 60 days after overpayment was identified Provided that violation of Anti-Kickback Statute constitutes a false claim 16

17 Legislative Update Increase in penalties From $5,500-$11,000 to $10,781-$21,563 CMS Final Rule regarding overpayments Clock begins to run when the person has, or should have through the exercise of reasonable diligence, determined that the person has received an overpayment and quantified the amount of the overpayment. 42 C.F.R (Feb. 11, 2016) 17

18 State False Claims Acts 18

19 SIGNIFICANT JUDICIAL DECISIONS 19

20 U.S. ex rel. Escobar v. Universal Health Servs., Inc. (June 16, 2016) The implied certification theory can, at least in some circumstances, provide a basis for liability... Even if the government has not expressly designated compliance as a condition for payment. 20

21 U.S. ex rel. Escobar v. Universal Health Servs., Inc. (June 16, 2016) Materiality standard is rigorous and demanding. Not enough to show Government would be entitled to refuse payment were it aware of the violation. [I]f the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material. 21

22 Post-Escobar Is there a mandatory two-part test for implied false certification claims? No: N.D. Cal (Rose v. Stephens Institute) Yes: E.D. Cal., M.D. Fla., N.D. Ala. 22

23 Post-Escobar Eighth Circuit: false certification could be material where government triple-conditioned payment on compliance and sometimes terminated violators (U.S. ex rel. Miller v. Weston Educ.) Seventh Circuit: false certification immaterial as a matter of law where no evidence government s payment decisions would likely or actually have been different (U.S. v. Sanford-Brown) 23

24 Post-Escobar First Circuit: false representation immaterial as a matter of law where CMS has not denied reimbursement in the wake of [relator s] allegations (U.S. ex rel. D Agostino v. ev3) Escobar on remand: allegations re: materiality were sufficient to satisfy pleading rules DOJ: working to cabin Escobar 24

25 State Farm Fire & Casualty Co. v. U.S. ex rel. Rigsby (December 6, 2016) Violation of the seal requirement does NOT mandate dismissal. Sanction is within the district court s discretion. Actual harm to the government Severity of the violation Evidence of bad faith 25

26 Rule 9(b) Circuit split continues Ninth & Seventh Circuits: relator can plead details of fraudulent scheme and likelihood of false claims Sixth Circuit: relator must plead representative examples of claims 26

27 Public Disclosure 31 U.S.C. 3730(e)(4): court must dismiss if qui tam complaint based on publicly disclosed allegations When is the public disclosure bar triggered? Fourth Circuit: when relators allegations derive from facts learned by attorney in prior lawsuit (U.S. ex rel. May v. Purdue) Seventh Circuit: when the government previously disclosed the facts underlying the claim (Cause of Action v. Chicago Transit) Ninth Circuit: not when the government previously disclosed the facts, unless it included an explicit accusation of wrongdoing (U.S. ex rel. Mateski v. Raytheon) 27

28 Public Disclosure When does the disclosure need to occur? Fourth Circuit: before the date of the first pleading to particularly allege the relevant fraud (U.S. ex rel. Beauchamp v. Academi Training) 28

29 Original Source 31 U.S.C. 3730(e)(4)(A)-(B): shall dismiss publicly disclosed action unless relator is an original source of the information Original source must have knowledge that is independent of and materially adds to the public disclosures. 29

30 Original Source Third Circuit: relator materially adds to public disclosure by contributing significant additional information to improve its quality (U.S. ex rel. Moore v. Majestic Blue) Seventh Circuit: relator does not materially add merely by adding new defendant, identifying additional gov t programs, and alleging continuous fraud (U.S. ex rel. Bogina v. Medline Industs.) First Circuit: relator does not materially add merely by adding detail or color to previously disclosed elements of an alleged scheme (U.S. ex rel. Winkelman v. CVS Caremark) 30

31 First to File Bar 31 U.S.C. 3730(b)(5): bars relators from bringing related action based on facts in pending action First Circuit: second relator can amend pleading after first-filed case is dismissed while on appeal (U.S. ex rel. Gadbois v. PharMerica Corp.) En banc denied Cert. denied Circuit split? 31

32 Hospice Eligibility cases AseraCare (N.D. Ala.) Permitted extrapolation Difference of opinion among experts insufficient to prove falsity Now on appeal Vista Hospice Care (N.D. Tex.) Required case-by-case analysis Difference of opinion among experts insufficient to prove falsity Settled 32

33 Reverse False Claims 31 U.S.C. 3729(a)(1)(G): assigns liability to anyone who makes a false statement for the purpose of avoiding an obligation owed to the United States Third Circuit: obligation includes customs duties (U.S. ex rel. Customs Fraud v. Victaulic) Fifth Circuit: obligation does not include fines or penalties from violating law because they are contingent, potential and not-yet-assessed (U.S. ex el. Simoneaux v. E.I. du Pont) 33

34 Scienter 31 U.S.C. 3729(a)(1): plaintiff must show that defendant acted knowingly Seventh Circuit: no scienter as a matter of law where statute had enough ambiguity and no evidence defendant knew it was violating statute (U.S. ex rel. Sheet Metal v. Horning) Eighth Circuit: no scienter as a matter of law where defendant acted under reasonable interpretation of an ambiguous regulation (U.S. ex el. Donegan v. Anesthesia Assocs.) Fifth Circuit: no scienter as a matter of law where only evidence showed defendant misunderstood the regulatory requirements (U.S. ex rel. Johnson v. Kaner Med.) 34

35 Retaliation 31 U.S.C. 3730(h): prohibits employers from retaliating against employees who initiate FCA action Employee must prove that (1) she engaged in protected activity, (2) employer knew about it, and (3) employer took adverse action as a result. Fourth Circuit: employee must have objectively reasonable belief that the employer is violating or soon will violate the FCA (Carlson v. Dyncorp) 35

36 Retaliation Who is protected? Fifth Circuit: not just employees, but also contractors and agents of the defendant (U.S. ex rel. Bias v. Tangipahoa Parish) What is adverse action? First Circuit: where employer presents non-retaliatory motive, whistleblower must do more than provide speculation (U.S. ex rel. Hamrick v. GlaxoSmithKline) 36

37 Damages 31 U.S.C. 3729(a)(1)(G): defendants may be liable for civil penalties, plus 3 times the amount of damages which the Government sustains Sixth Circuit: reduced damages from $762K to $14K because gov t had received almost all of the value that it bargained for. (U.S. ex rel. Wall v. Circle C) S.D. Ohio: defendant entitled to offset where government received price reductions (U.S. v. United Techs.) 37

38 Jeremy Kernodle is a litigator who focuses on government litigation and appeals. He has extensive experience defending clients in False Claims Act cases, and routinely advises healthcare providers, defense contractors, and other clients in high-stakes disputes with the government. He was named a Texas Super Lawyer, Appellate, Thomson Reuters, , and a Texas Super Lawyers Rising Star in Appellate Litigation in Texas, Thomson Reuters, Benchmark Litigation named Jeremy a Leading Appellate Practitioner, Euromoney Institutional Investor PLC, Jeremy is the founder and chair of the firm s False Claims Act/Qui Tam Practice Group. He serves on the Executive Committee and is the past president of the Federal Bar Association, Dallas Chapter; is the current president of the Federalist Society, Dallas; and is the Treasurer of the Dallas Bar Association s Appellate Section. Before joining Haynes and Boone, Jeremy served as an attorney-adviser in the Office of Legal Counsel at the U.S. Department of Justice, where he was among a small number of lawyers advising the White House and other senior Executive Branch officials on constitutional and other significant legal issues. 38

39 Sean McKenna focuses his practice on healthcare enforcement and regulatory issues, representing individuals and providers under civil or administrative investigation by the Department of Justice, Offices of Inspector General, and Attorneys General Medicaid Fraud Control Units, as well as in criminal investigations and matters involving the United States and State Attorneys General. As a former ten-year Assistant United States Attorney, Associate Counsel to the Inspector General and General Counsel for the U.S. Department of Health and Human Services, Sean focuses his practice on matters involving the health care industry and regularly represents clients before Medicare, Medicaid and commercial contractors. Sean s work includes assisting clients with internal investigations and compliance reviews, as well as advising on compliance with state and federal fraud and abuse rules. He is a frequent invited speaker at national, regional, and local conference. 39

40 Thank you. 40